Nutanix, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Nutanix Q1 fiscal year 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. Now I would like to hand the conference over to your speaker today, Ms. Tanya Please go ahead.

Good afternoon, and welcome to today's conference call to discuss the results of our first quarter of fiscal 2021. This call is also being broadcast over the web and can be accessed in our investor relations website at ir.nutanix.com. Joining me today are Dheeraj Pandey, Nutanix's CEO, and Dustin Williams, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its first quarter of fiscal year 2021. If you'd like to read the release, please visit the press releases section of our IR website. During today's call, management will make forward-looking statements, including statements regarding our business plans, strategies and outlooks, including our financial performance, use of financial targets and performance metrics, and competitive position in future periods. the timing and impact of our current and future business model transition, the factors driving our growth, the timing and impact of our announced CEO transition plan, and the current and anticipated impact of the COVID-19 pandemic. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. For a detailed description of these factors, please refer to our SEC filings, including our most recent annual report on Form 10-K for fiscal 2020, filed with the SEC on September 23, 2020, as well as our earnings press release issued today. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after this call. As a result, you should not rely on them as representing our views in the future. Please note, unless otherwise specifically referenced, All financial measures we use on today's call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliation to these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Lastly, Nutanix Management will host virtual meetings with investors at the Credit Suisse 24th Annual Technology Conference on December 1st. the Wells Fargo T&T Summit on December 2nd, the Raymond James Technology Conference on December 7th, and the Needham Growth Conference on January 11th. We hope to connect with many of you there. And with that, I'll turn the call over to Dheeraj. Dheeraj?

Thank you, Tanya, and good afternoon, everyone. Q1 was a very good quarter, positioning us well for the rest of fiscal 21. While Dustin will go into more details on the financials, The headline is that we outperformed across all our key metrics. ACV billings were 14% ahead of the midpoint of our guidance and consensus, and notably, Q1 was our best ACV booking squatter ever, the pandemic notwithstanding. In addition, we delivered strong gross margins, EPS, and free cash flow performance. We are delighted with our continued progress, and it is great to look back on our journey over the last three years and see how far we have come. Our product thesis of a hybrid and multi-cloud future, built on top of our industry-leading hyper-converged infrastructure, the HCI of last decade, combined with an ambitious transition to a cloud-like subscription business model, is bearing fruit. While there is more to do, So the hardest work is behind us, and I'm proud and grateful for what we've collectively accomplished to date. There were a number of factors that contributed to our Q1 performance. First, our ACV-based sales compensation strategy delivered positive benefits to our business. In Q1, our average contract term shortened, and as a result of this shift, we saw lower overall discounting, and we sold more new products. all while driving significant run rate ACV growth of 29% year-over-year at a $1.3 billion scale. Next, as I mentioned, we saw strong adoption of our new products on top of growth in our core software. On a rolling four-quarter basis, our new product attach rate during Q1 was 35%, up 7 percentage points from a year ago. In fact, new ACV for new products grew 87% year-over-year and 27% quarter-over-quarter. Within our newer products, we saw particularly good momentum with our data center solutions, Files and Flow, as well as DevOps and databases of service solution, Calm and Error. Notably, a significant number of new product deals also included more licenses for our core software. proving our thesis that as we drive demand for our new products, we also drive demand for our core software, which is the foundation for our hybrid cloud infrastructure, the new HCI of this decade. Demand for our solution was consistent across all our geographies and many verticals, including federal, which had a good quarter as expected, owing to the seasonality of the U.S. government's fiscal year end. The Fed sector also had a number of one-year contract duration deals, contributing to the reduction of average contract durations in the quarter, which Dustin will address in more detail. As always, our customer journeys are the best ways to speak of the quarter. A customer win during the quarter that combined many of the themes I've discussed was with one of the largest and oldest financial services firms in the world providing investment management, servicing, and administration services. This existing customer, which has spent more than $20 million in lifetime, spent another $1.7 million in ACV to expand their private cloud. We also had a very similar story with one of the largest power companies in Japan, which has spent upwards of $15 million lifetime digitizing their desktops and filers with our software stack, spending another $1.8 million in ACV in Q1. Our strong results were also driven by our go-to-market momentum in the era of cloud, specifically the successful launch of our ACV sales compensation plan, together with effective sales enablement and training around ACV benefits. In addition, our sales teams have done an excellent job of improving the quality of the sales process by building a robust pipeline, even during COVID-19, working closely with partners and adopting a multi-product and multi-workload sales approach. The channel continues to play an extremely important role in how we help evolve our customer journey. To that end, we announced a simplified channel program to deliver even more profitability and an accelerated roadmap to help partners embrace the cloud business model. Additionally, we made meaningful improvements to Nutanix University, our education arm. The program now provides more certifications across new skill levels and technology tracks to increase the stickiness of Nutanix software and overall consumption of our technology. We quadrupled participation in this program the past year with over 30,000 learners and counting. Our on-prem partnerships with HPE, Dell, Lenovo, and others continue to be an important part of our strategy for offering freedom of choice to our customers. In fact, we are at our best quarter to date with HPE in new ACV as well as meaningful new customer acquisition. A great example of a new customer we gained during this quarter is a large European furniture retailer who selected our core software, database and service solution, ERA, and automation software, Calm. They plan to implement a fully automated distributed cloud solution that will reduce IT implementation time from weeks to days with no IT staff on site, especially as they navigate the pandemic. Speaking of the pandemic and the digital transformation it has helped accelerate, for the past several quarters, we have become a meaningfully digital marketing organization. Test Drive, our zero-touch self-service for prospects, continues to provide distinctive top-of-the-funnel engagement and has been shown to shorten sales cycles while delivering the highest conversion rate of all of our marketing programs. We also continue to hold virtual events globally. And in Q1, we held our largest event ever, virtual or in-person, in our company's history. Our 100% virtual .NEXT event had record attendance of over 40,000 prospects, customers and partners, and is in track to deliver strong pipeline generation in the quarter at a significantly lower cost than in-person events. Let me also share with you how we are morphing from being a pioneer in on-prem hyper-converged infrastructure to being an authentic hybrid cloud infrastructure, the new HCI company. During the quarter, we announced the general availability of clusters, our HCI on AWS. We also announced a significant partnership with Microsoft to bring our product portfolio onto Azure. This partnership substantially evolves our company's strategy. enabling us to provide solutions that will deliver seamless application, data, and license mobility, including a singular experience of management across all clouds. This is a major competitive advantage as we become the foremost infrastructure software company with a bring-your-own-license approach to help our customers in the hybrid computing journey. As we've stated in the past, availability of Nutanix clusters in AWS also offers new benefits, including extending the simplicity and ease of use of our software to the public cloud. This represents a significant step forward in realizing our vision to make computing invisible anywhere by delivering a unified fabric across multiple clouds, public or private. A financial services institution in the APJ region, is an example of a new customer who purchased clusters on AWS during the quarter in a one-year contract. They selected Nutanix to help support their growing test and dev needs for services to their clients, and Nutanix clusters on AWS provides them with the flexibility and frictionless migration to any cloud they require. We continue to innovate both our core platform and new products in the quarter. This includes new capabilities to our core software platform, as well as the launch of our Kubernetes-based PaaS solution, platform as a service, and significant updates to our database as a service solution era. As subscription business models continue to underscore the need for consumption and renewals, our product reliability and outstanding customer service continue to be a big driver of our loyalty and repeat businesses. For the seventh year in a row, we were awarded the North Face Scoreboard Award from CRMI in recognition of our customer centricity. And because of our sustained excellence for having won this award for more than five years, we were also conferred the North Face Summit Class Award, which is a rare honor. Finally, as we think about our performance relative to our future opportunity, I'd like to talk briefly about our addressable markets and how they continue to grow and evolve. Gartner predicts that by 2025, 80% of organizations will be using hyper-converted solutions, doubling from 40% in 2020. They've been encouraged to see that IT spending has held up despite the pandemic as companies prioritize modernization with private and public clouds, hands-free automation, and remote work and business continuity projects. This is validated by the results for third annual Enterprise Cloud Index, which we launched last week. Across 3,400 IT professionals around the world, 46% of respondents said they increased their hybrid investments as a result of the pandemic. Global IT teams are planning substantial infrastructure changes and collectively see hybrid cloud deployments increasing 37 percentage points over the next five years. In short, these trends provide a powerful tailwind in the lift and shift of cloud, both private and public. With that, let me hand it over to Dustin. Dustin?